INDIAN BANKING SECTOR: MEASUREMENT AND ANALYSIS OF MARKET VALUE ADDED AN EMPIRICAL STUDY IN THE SELECT INDIAN BANKS
Authors: Najmus Sahar Sayed, Gazia Sayed
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The banking industry in India has a huge canvas of history, which covers the traditional banking
practices right from nationalization to privatization of banks and now to multinational banks in India.
Therefore, Banking in India has been through a long journey. Banking industry in India has also achieved a new height with the changing times. The use of technology has brought a revolution in the working style of the banks. However, with the changing dynamics, banking business has brought a new kind of risk exposure. Majority of the banks are successful in keeping with the confidence of the shareholders as well as other stakeholders but not all the banks are able to live up to the expectation of the shareholders. In order to grow and gain the faith of shareholders, organizations should try to improve the long-term financial performance and create wealth for the shareholders. Creating wealth or value for the shareholders is the core principle on which the economic system is based on. The main objective on any organization is ‘Maximizing the Shareholders wealth’. No enterprise survives or grows if it fails to generate value for its stakeholders. The companies, which gave low preference to the shareholder inquisitiveness, are now bestowing the utmost inclination to it. In order to help companies to generate value to its shareholders, various value-based management systems have been developed. One of such model is MVA (Market Value Added) to measure the value added by the organization. We have chosen this tool to evaluate the performance of the Indian Banks.
After deciding the measurement tool, we have chosen those banks which are listed on the Bombay Stock Exchange (BSE) and for which the data is available in the Ace Equity database.
In this research paper, the researchers have made an attempt to study the Market Value Added
performance in the Indian banking industry as well as the researchers tried to explore the extend of
relationship between MVA and other related variables namely, Dividend Pay/Out Ratio, Profit After Tax Margin, Cash Profit Margin, Return on Asset, Return on Equity, Return On Capital Employed, Net Sales Growth, Return on Net Worth, Dividend Yield, Capital Adequacy Ratio, Non-Performing Assets etc. MVA analysis revealed that most of the public sector banks had eroded the wealth of shareholders. Multiple regression analysis using backward method was used to find the dependent variables. The research showed that MVA depends on Dividend Yield and Dividend Pay/Out Ratio. Thus, it implies that wealth creation is strongly influenced by the returns provided to the shareholders.
Jel Codes: C02, C35, C88, G17, G21